It also believes the ASX 200 could be about 6,275 points by the end of calendar 2018, but won't be able to match the better returns expected for sharemarkets in the United States, Europe and Asia.

UBS equity strategists David Cassidy and Dean Dusanic say the Australian sharemarket "appears capable" of posting another trend-like return of between 8 per cent and 10 per cent in 2018, but it is likely to be a laggard compared with offshore sharemarkets, because of "comparatively sluggish" growth in earnings per share.

It is also cautious about the big banks, and prefers other financial stocks where there is more leverage to the prospect of higher interest rates and "buoyant capital market conditions". Overall, UBS is underweight in REITS but generally overweight in resources because of the expectation of solid global growth underpinning commodity prices, and the ability of the resource sector to act as a hedge against rising inflation and interest rates.

Mr Cassidy said there was solid upside potential in the resources sector.

Room to rise

"The Australian resource sector does present as a source of some potential upside to 2018 earnings estimates, as was the case in both 2016 and 2017," he said.

A simple mark-to-market of current spot commodities prices suggested profit upgrades "in the order" of 20 to 30 per cent among resources stocks.

All the 10 favoured stocks for 2018 have a "buy" rating on them at UBS. The broker expects earnings per share growth of 19.9 per cent in 2017-18 for BHP, and an average EPS growth rate of 8.2 per cent for the period between 2016-2017 and 2019-2020.

AGL is expected to deliver EPS growth of 13.8 per cent in 2018-19, ahead of Origin at 8.7 per cent, but both have the right characteristics to deliver solid returns.

Mr Cassidy said ANZ, Commonwealth Bank, NAB and Westpac were "a little on the cheap side" regarding valuations but their profit growth outlook appeared constrained. "We are left feeling decidedly neutral on the sector".

He said an unknown factor for 2018 was how the banking sector could perform against a backdrop of higher global interest rates.